Ben Bernanke’s speech on Friday is seen as tipping to U.S. Federal Reserve’s next move.
Financial markets hope that the central bank will jump-start a fresh program of buying longer-term U.S. Treasury securities at its November 2-3 meeting. More information about Fed plans to raise market’s expectations of future inflation needs to be given.
Consumption could surge due to raising inflation expectations as people purchase more prior to price increase, which leads to encourage borrowing.
The Fed has been expected to refresh its large-scale asset buying to spur growth. Yelena Shulyatyeva, an economist for BNP Paribas in New York, said that Fed would probably pull the trigger.
The dollar weakened to its lowest level this year, compared to other currencies. Its devaluations would have impacts on many countries’ exports. Many countries have taken steps to ease the rise in their currencies.
Bernanke spoke at 8:15 a.m. at a Boston Fed conference, focusing on monetary policy in a low inflation environment.
Although the recession which began in December 2007 ended in June 2009, highly stubborn unemployment rate remained at 9.6 percent. Core inflation has dropped to 1.4 percent.
Financial markets are expecting Fed chairman to clarify the possibility of its announcement of a big program of asset purchases or its option for more modest buying plans.
According to Jay Bryson, an economist for Wells Fargo Securities, Fed officials would make mistakes on the side of shock-and-awe-type approach at that point in an attempt to jump-start the economy.
Additionally, the markets still does not know the Fed’s new communication strategy to complement any asset purchase.
Oil was steady near $83 ahead of Bernanke’s speech, heading for a third consecutive weekly close above $80. U.S. crude for November increased 6 cents to $82.75 a barrel.
In the Asian session Friday, the Australian dollar backed away from parity. Fed chairman’s speech received much attention. Currency traders said that Ben Bernanke is widely expected to clarify that the Fed is on track to release a new round of quantitative easing through the purchase of Treasury securities at its November policy meeting.
Yields on U.S. Treasuries dropped below 2.5 per cent, over a full percentage point lower than a few previous months.